Pressure for pay ‎reform may now be irresistible

Mark Kleinman
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Theresa May Visits The West Midlands
Prime Minister Theresa May’s has vowed to reform executive pay (Source: Getty)

Chris Philp’s timing is impeccable. Theresa May’s fresh vow to reform executive pay had no sooner been uttered this week than her fellow Conservative MP was spraying bullets at company directors, institutional investors and remuneration consultants.

A looming autumn crackdown by the government explains why committee room 15 in the House of Commons was packed on Monday with those whose stewardship is the target of Philp’s ire.

Under his plans, the top five investors in listed companies would form a shareholder committee vested with three powers: to approve the remuneration policy; hire and fire directors; and pose questions on corporate strategy for the main board to answer.

It amounts to a (narrower) definition of the existing role of non-executives – and the anecdotal response from the City suggests that it’s fraught with pitfalls.

Read more: Beware the unintended consequences of May’s flawed executive pay proposals

Here’s the biggest: asking a group of non-specialist fund managers, rather than professional directors with access to inside information, to take responsibility for recruiting or ousting top executives. Another potential problem is that it would create thousands of shadow directors inside City institutions, for which Philp’s suggestion of Chinese walls to segregate individual shareholder representatives from their colleagues feels like an unwieldy solution.

Nevertheless, Philp’s report contains thoughtful proposals for reform, including a move towards annual binding pay votes.

And he has powerful endorsers. Lord Myners said the MP’s recommendations would tackle the issue of “ownerless corporations” by forcing shareholders to demonstrate greater engagement. With May herself clearly intent on tackling boardroom pay inflation, Philp’s proposals will have been guaranteed a keen ear when he discussed them in Downing Street this week.

F1 Deal’s Chequered Past

There isn’t much that has had cause to unite a Texan teacher, Norwegian central banker and London-based private equity executive – beyond, that is, an interest in the longevity of Bernie Ecclestone, the seemingly perpetual boss of Formula One.

This week’s £6bn deal for Liberty Media Corporation to take control of the motorsport series will have been met with disdain in Dallas and Oslo, where two of F1’s most prominent minority investors are based. CVC Capital Partners, F1’s controlling shareholder since 2005, won’t share their angst. Its original investment has turned into the most capital-generative private equity deal ever done, generating billions of dollars for its owners. Its subsequent sale of several minority stakes – at a $9.2bn valuation – derisked its holding at a challenging time for the sport.

Read more: F1 accelerates to record valuation of £6.4bn

Liberty’s decision to buy F1 for the comparatively paltry price of $8bn reflects the difficulty the sport has had attracting younger fans and embracing digital and social media.

True, the minority investors’ receipt of several dividends since they bought in will ease the pain they feel from the Liberty Media takeover. It’s worth remembering, though, that when they bought into F1, it was in the expectation of a $10bn-plus flotation on the Singapore Stock Exchange.

So in that context, only CVC now stands on top of the winners’ podium.

Terra Firma U-Turn

That didn’t last long. It was only six weeks ago that I wrote here about the shrewd choice Terra Firma had made in recruiting former Duke Street Capital executive Iain Kennedy to its senior ranks.

Kennedy hadn’t even turned up for work at the owner of Wyevale, the garden centre chain, than Terra Firma’s new boss turfed out the role he was due to occupy.

Read more: Terra Firma's Guy Hands drops EMI lawsuit against Citigroup

Andrew Geczy, the former Lloyds executive, is said to have decided that Terra Firma had no need for a head of private equity. There’s little doubt that Kennedy will turn up in a senior role elsewhere before too long.

But the about-turn suggests that Guy Hands’ firm is still engaged in soul-searching about its future scope. It will need to resolve that quickly if it wants to raise new capital from external investors.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

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